For the International Monetary Fund (IMF) to approve Nigeria’s
$3.4 billion loan request meant to tackle the COVID-19 pandemic,
the Federal Government assured the global bank of tweaking several
economic policies that would cut waste and boost efficiency.
Top on the list is the total scrapping of fuel subsidy, which
has been perennially fraught with fraud.
Another assurance is reverting to government’s planned
medium-term fiscal consolidation path—which includes increasing
revenue to 15 percent of Gross Domestic Product through further
Value Added Tax reforms, rise in excises, and removal of tax
exemptions, once the pandemic is over.
In a letter of intent requesting for the $3.4 financial
assistance under IMF’s rapid financing instrument, the federal
government assured the IMF that it would remain “engaged with the
IMF to benefit from its policy advice and its technical
assistance”.
The letter was signed by Mrs Zainab Ahmed, the Minister of
Finance, Budget and National Planning, and Mr Godwin Emefiele,
Governor, Central Bank of Nigeria (CBN).
Though the Finance Minister earlier told journalists that the
$3.4 billion was Nigeria’s contribution to IMF and had no
conditions attached in pulling it out, the global bank however
described the money as a loan with 1% interest.
Nonetheless, the Federal Government recently said it has begun
moves to deregulate the downstream oil sector by adjusting petrol
retail price to reflect current global realities.
The letter read in part; “the recent introduction and
implementation of an automatic fuel price formula will ensure fuel
subsidies, which we have eliminated, do not reemerge. In line with
the Fiscal Responsibility Act, this will allow us to reduce the
Federal Government deficit to under 3 percent of GDP and eliminate
recourse to central bank financing by 2025.
“We are also advancing in our power sector reforms—with
technical assistance and financial support from the World
Bank—including through capping electricity tariff shortfalls this
year to N380 billion and moving to full cost-reflective tariffs in
2021”.
In the area of monetary and exchange rate policy, Nigeria
assured the IMF that in the Economic Recovery and Growth Plan, “we
are also strengthening monetary and exchange rate policies with a
view to moving towards full exchange rate unification and greater
exchange rate flexibility, which would help preserve foreign
exchange reserves and avoid economic dislocation.
“In addition to the external borrowing sought, we are also
increasing our domestic borrowing limits in the supplementary
budget so that we can make use of our favourable low domestic
yields, particularly since the results of the last domestic bond
auction show strong demand. The existing stock of overdrafts held
at the CBN will also be securitized.
“We fully recognize the importance of ensuring that financial
assistance received is used for intended purposes. To that end, we
will (i) create specific budget lines to facilitate the tracking
and reporting of emergency response expenditures and report funds
released and expenditures incurred monthly on the transparency
portal (http://opentreasury.gov.ng/[1]); (ii)
publish procurement plans, procurement notices for all the
emergency response activities—including the name of awarded
companies and of beneficial owners—on the Bureau of Public
procurement website; and (iii) publish no later than three to six
months after the end of the fiscal year the report of an
independent audit into the emergency response expenditures and
related procurement process, which will be conducted by the Auditor
General of the Federation—who will be provided the resources
necessary and will consult with external/third party auditors”, the
letter further explained.
In line with IMF safeguards policy, the letter said Nigeria was
committed to undergoing a new safeguards assessment conducted by
the Fund. “To this end, we have authorized IMF staff to hold
discussions with external auditors and provide IMF staff access to
the CBN’s most recently completed external audit reports.
“We do not intend to introduce measures or policies that would
exacerbate the current balance-of-payments difficulties. We do not
intend to impose new or intensify existing restrictions on the
making of payments and transfers for current international
transactions, trade restrictions for balance-of-payments purposes,
or multiple currency practices, or to enter into bilateral payments
agreements which are inconsistent with Article VIII of the IMF’s
Articles of Agreement.
“We are determined to meet the immense challenge the Covid-19
pandemic is facing us with. Support from the international
community will be critical, and we look forward to early approval
of financial assistance by the IMF—which will help our effort to
keep the Nigerian economy on a strong path and sustain our fight
against poverty. Beyond this much needed immediate financial
assistance, we reaffirm our willingness to remain engaged with the
IMF, to benefit from its policy advice and its technical
assistance”, it noted.
For the International Monetary Fund (IMF) to approve Nigeria’s
$3.4 billion loan request meant to tackle the COVID-19 pandemic,
the Federal Government assured the global bank of tweaking several
economic policies that would cut waste and boost efficiency.
Top on the list is the total scrapping of fuel subsidy, which
has been perennially fraught with fraud.
Another assurance is reverting to government’s planned
medium-term fiscal consolidation path—which includes increasing
revenue to 15 percent of Gross Domestic Product through further
Value Added Tax reforms, rise in excises, and removal of tax
exemptions, once the pandemic is over.
In a letter of intent requesting for the $3.4 financial
assistance under IMF’s rapid financing instrument, the federal
government assured the IMF that it would remain “engaged with the
IMF to benefit from its policy advice and its technical
assistance”.
The letter was signed by Mrs Zainab Ahmed, the Minister of
Finance, Budget and National Planning, and Mr Godwin Emefiele,
Governor, Central Bank of Nigeria (CBN).
Though the Finance Minister earlier told journalists that the
$3.4 billion was Nigeria’s contribution to IMF and had no
conditions attached in pulling it out, the global bank however
described the money as a loan with 1% interest.
Nonetheless, the Federal Government recently said it has begun
moves to deregulate the downstream oil sector by adjusting petrol
retail price to reflect current global realities.
The letter read in part; “the recent introduction and
implementation of an automatic fuel price formula will ensure fuel
subsidies, which we have eliminated, do not reemerge. In line with
the Fiscal Responsibility Act, this will allow us to reduce the
Federal Government deficit to under 3 percent of GDP and eliminate
recourse to central bank financing by 2025.
“We are also advancing in our power sector reforms—with
technical assistance and financial support from the World
Bank—including through capping electricity tariff shortfalls this
year to N380 billion and moving to full cost-reflective tariffs in
2021”.
In the area of monetary and exchange rate policy, Nigeria
assured the IMF that in the Economic Recovery and Growth Plan, “we
are also strengthening monetary and exchange rate policies with a
view to moving towards full exchange rate unification and greater
exchange rate flexibility, which would help preserve foreign
exchange reserves and avoid economic dislocation.
“In addition to the external borrowing sought, we are also
increasing our domestic borrowing limits in the supplementary
budget so that we can make use of our favourable low domestic
yields, particularly since the results of the last domestic bond
auction show strong demand. The existing stock of overdrafts held
at the CBN will also be securitized.
“We fully recognize the importance of ensuring that financial
assistance received is used for intended purposes. To that end, we
will (i) create specific budget lines to facilitate the tracking
and reporting of emergency response expenditures and report funds
released and expenditures incurred monthly on the transparency
portal (http://opentreasury.gov.ng/[1]); (ii)
publish procurement plans, procurement notices for all the
emergency response activities—including the name of awarded
companies and of beneficial owners—on the Bureau of Public
procurement website; and (iii) publish no later than three to six
months after the end of the fiscal year the report of an
independent audit into the emergency response expenditures and
related procurement process, which will be conducted by the Auditor
General of the Federation—who will be provided the resources
necessary and will consult with external/third party auditors”, the
letter further explained.
In line with IMF safeguards policy, the letter said Nigeria was
committed to undergoing a new safeguards assessment conducted by
the Fund. “To this end, we have authorized IMF staff to hold
discussions with external auditors and provide IMF staff access to
the CBN’s most recently completed external audit reports.
“We do not intend to introduce measures or policies that would
exacerbate the current balance-of-payments difficulties. We do not
intend to impose new or intensify existing restrictions on the
making of payments and transfers for current international
transactions, trade restrictions for balance-of-payments purposes,
or multiple currency practices, or to enter into bilateral payments
agreements which are inconsistent with Article VIII of the IMF’s
Articles of Agreement.
“We are determined to meet the immense challenge the Covid-19
pandemic is facing us with. Support from the international
community will be critical, and we look forward to early approval
of financial assistance by the IMF—which will help our effort to
keep the Nigerian economy on a strong path and sustain our fight
against poverty. Beyond this much needed immediate financial
assistance, we reaffirm our willingness to remain engaged with the
IMF, to benefit from its policy advice and its technical
assistance”, it noted.